Federal government employees were a smaller component of
the labor force at the end of the century than at any
time since 1940.

As the chart indicates, in 1997, state and local governments employed six times
more people than the federal government. This may seem counterintuitive, given
the fact that all state and local governments combined spend somewhat less each
year than the federal government.

These employment trends can be easily explained, however. First, the federal
government
makes much greater use of contractors to perform governmental functions
than do state and local governments. Federal agencies routinely outsource
research and development, strategic planning, employee training and evaluation,
computer installation, system and standards design, transportation, printing and
even some national security and intelligence operations. Second, more than half of
the federal budget consists of payments to, or on behalf of, individual
beneficiaries—
Social Security, Medicare, Medicaid, food stamps, welfare, veterans’ benefits,
civil service and military retirement, housing subsidies, student aid, and so
forth. Other substantial chunks go to the armed services, debt service, and grants
to the states, leaving only about a fifth of the federal budget for the civilian
payroll.
The principal reductions of federal employees in the last decade of the century
were among civilians working at the Department of Defense.